News and Media

14 January 2013

Residential property within a SSAS or SIPP

The draft version of new Labour's radical pension changes in 2005 stated that residential property was to be a permitted asset within a SSAS or SIPP. However, a last minute change was made by the then Chancellor, Gordon Brown, which removed controlling ownership of residential property as a viable option under the current rules. At the time significant interest, and indeed planning, had been generated by the prospect of investing in residential property. Although controlling ownership of residential property is no longer viable, there still remains a number of ways of developing, or indeed owning, residential property via a pension scheme.

It is entirely possible to develop residential property via a SIPP or SSAS, up to a point. The key point is that a pension scheme may not own a controlling share in a property which is suitable for use as a dwelling, which is defined in the rules as a property which has a certificate of habitation. An opportunity therefore exists to develop residential properties through a pension scheme and sell them prior to final completion of the build. Although the market value of the property may not be as high as if the property were fully completed, it still may offer an investment opportunity and indeed a source of development for finance.

The sale of the property could be made to the member of the scheme or indeed a connected business, who could then complete the property and sell it on the open market. Care must be taken if more than one property is disposed of as HM Revenue and Customs could deem the pension scheme to be trading, which would have the effect of the scheme losing its exemption to capital gains tax. As such, advice is necessary to ensure that transactions are structured correctly.

Allowable property purchases

Currently, properties which could be purchased through a pension scheme include commercial property and land, residential property - up to the point of becoming suitable for use as a dwelling, hotels (although there are specific rules regarding hotel rooms), care homes, residential with commercial use e.g. a shop with a flat above (unconnected manager of shop only to occupy the flat), halls of residence and finally prisons - although there is nothing in the legislation that specifically covers the position if a trustee becomes an inmate of a prison within their own pension scheme! However, this is a whole new ball game and could impact on who can and cannot be a trustee.

For further guidance on residential property within a scheme, send us an enquiry or call 0116 240 8730.